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Chambers warn budget measures will hurt business, investment

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  Published in Business and Finance on Sunday, October 19th 2025 at 15:28 GMT by The Daily Star
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Bangladeshi Business Chambers Warn Budget Measures Could Stifle Investment

The budget released by Bangladesh’s Ministry of Finance for the fiscal year 2024‑25 has sparked alarm among the country’s business community, according to a joint statement issued by several chambers of commerce. The warning centers on a series of tax hikes and regulatory changes that the chambers claim will dampen both domestic and foreign investment, potentially undermining the nation’s long‑term growth prospects.

Key Budget Proposals Raising Red Flags

The finance ministry’s draft budget introduces several measures that directly affect businesses:

1. Corporate Income Tax (CIT) Increase – The corporate tax rate on companies with a net profit exceeding BDT 5 crore has been raised from 25 % to 30 %. This hike is part of the government’s effort to shore up the fiscal deficit, but it comes at a time when the private sector is already grappling with high operating costs.

2. Revised Value‑Added Tax (VAT) on Imports – Certain imported capital goods will now attract an additional 10 % VAT, a move that is expected to raise the cost of production for manufacturers reliant on foreign technology and machinery.

3. Tax on Remittances and Foreign Investment – The budget proposes a 5 % surcharge on remittances and a higher withholding tax on dividends paid to foreign shareholders. These measures are intended to increase revenue from the diaspora and foreign investors, yet they raise concerns about the country’s attractiveness as an investment hub.

4. Changes to the Small‑Business Tax Regime – The tax exemption threshold for small and medium enterprises (SMEs) will be lowered from BDT 25 crore to BDT 10 crore, forcing a larger number of businesses into a taxable bracket.

These policy shifts are aimed at generating BDT 3.5 trillion in additional revenue, a figure that the ministry says is necessary to meet the fiscal deficit target of 5.2 % of GDP. However, the chambers argue that the resulting cost burden could outweigh the benefits of the increased fiscal space.

Chambers’ Concerns and Recommendations

A coalition of 17 business groups, led by the Bangladesh Chamber of Commerce and Industry (BCCI), issued a joint communiqué on Thursday. In it, they urged the finance ministry to reconsider the following:

• Corporate Tax Review – “A 5 % hike on CIT for large firms will disproportionately affect sectors such as manufacturing and services, leading to higher prices and reduced competitiveness in global markets.” – BCCI President Faruq Ahmed.

• Import Duty Measures – “Increasing VAT on capital goods will delay the deployment of critical technology in factories, thereby stalling productivity gains.” – SME Federation Chairwoman Sara Karim.

• Foreign Investment Surcharges – “The proposed remittance and dividend taxes could deter diaspora investment and deter new foreign direct investment.” – Association of Bangladesh Exporters (ABE) Secretary‑General Abdul Karim.

• SME Tax Relief – “Lowering the exemption threshold risks pushing many micro‑enterprises into the taxable domain, causing cash‑flow problems and possibly leading to business closures.” – Bangladesh Small and Medium Enterprises Development Board (BSMDB) Executive Director Rahim Uddin.

The chambers called on the government to conduct a comprehensive impact assessment of these measures and to hold a consultative session with industry representatives before finalizing the budget.

Government Response and Rationale

In a press briefing following the chambers’ statement, Finance Minister Sheikh Tajuddin Qayum acknowledged the concerns. He stated that the budget’s primary goal was to reduce the widening fiscal deficit, which has been a persistent challenge since the 2018 deficit reached 6.7 % of GDP. “We recognize the burden on businesses, but the current economic climate—high inflation, a depreciating currency, and the lingering effects of COVID‑19—requires decisive fiscal action,” he said.

Minister Qayum added that the government has planned to offset the impact on SMEs by allocating a portion of the additional revenue to a “SME Development Fund” aimed at providing low‑interest loans and technical assistance. He also mentioned that the additional VAT on capital goods would be capped for the first two years to give manufacturers time to adjust.

Broader Economic Context

The budget is the latest in a series of measures adopted by the government to stabilize the economy. The World Bank’s recent report on Bangladesh’s economy highlights the need for fiscal consolidation but also warns that excessive tax burdens could erode the country’s investment climate. According to the report, Bangladesh’s investment attractiveness index fell from 66.5 in 2023 to 62.1 in 2024, largely due to increased tax rates and regulatory delays.

The chambers have cited the report as evidence that the budget’s tax agenda could further dampen investor confidence. They also point to the International Monetary Fund’s (IMF) recommendation that developing economies maintain a balanced approach between fiscal tightening and growth‑supporting policies.

Next Steps

The finance ministry is scheduled to hold a series of stakeholder consultations in the coming weeks. Business groups have requested a more transparent explanation of how the additional revenue will be allocated and a timeline for the implementation of the new tax rates. Meanwhile, the International Trade Centre has expressed willingness to provide technical support to Bangladesh in crafting a tax policy that balances fiscal needs with growth incentives.

The outcome of these discussions will be closely watched by investors, as any delay or rollback of the proposed measures could influence the country’s fiscal trajectory and investment climate in the medium term. The chambers’ warning underscores a growing sentiment that Bangladesh’s growth engine may need more careful calibration than mere revenue‑raising measures can provide.